Health insurance is a type of insurance that covers costs incurred for unexpected medical expenses. Health insurance is a relatively recent form of insurance; and it did not become important for most people until advances in modern medicine made many expensive procedures and drugs possible to cure injury and disease. Today medical expenses often exceed the cost of housing. A health insurer may be a corporation, a social institution, or a government agency. Health insurance can be market-based, socialized, or mixed, but in most countries is some form of mixture.
There are many types of health insurance plans. Some are high-deductible plans that insure one only against major expenses; these are the least expensive, but require that the insured pays a substantial amount toward medical expenses before the insurance begins to pay. Others are complete managed care programs that cover every visit to a physician and all medications. Health insurance plans can be for individuals, families, or groups. Socialized medicine is a form of national health insurance. Related types of health insurance usually purchased or provided separately are dental insurance, long-term care insurance, and disability insurance.
People want to live long, healthy lives, but the cost of insuring for the ever-increasing number and variety of medical treatments available is higher than what many people and societies can afford. This creates a moral and social challenge to reduce medical costs or find more ways for people to obtain health insurance. Solutions must be sought not only through innovations in combining personal responsibility with collective support (such as health savings accounts combined with high-deductible insurance), but also through increased attention to wellness and greater integration of alternative healing modalities with conventional medicine. At a deeper level, society will need to deal with questions about life, dying, and death and the ways in which advanced medical technologies can most appropriately intervene or not intervene in these natural processes.
History and evolution
Forms of life and disability insurance date back to ancient times. In ancient Greece, benevolent societies were formed to care for individual’s families when the income of the breadwinner was lost. Medieval guilds had similar plans. Many of the first group health insurance plans were an outgrowth of the guild idea. They were mutual insurance companies, like cooperatives, that were owned by the members. As shareholders, members would divide any profits from the company.
In the nineteenth century, early health insurance was actually disability insurance. Patients were expected to pay all other health care costs out of their own pockets. During the twentieth century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs.
Social Health Insurance
State-mandated health insurance began in Germany in 1883 by requiring that workers be covered by the sickness funds maintained by labor unions and various trades. These funds covered both medical care and loss of wages. Many other nations followed suit: Austria (1888), Hungary (1891), Norway (1909), Serbia (1910), Britain (1911), Russia (1912), and the Netherlands (1913).
Most other European countries subsidized mutual aid funds to make them more affordable by a larger number of people. However, in the first decade of the twentieth century, the population covered by these European plans was generally 25 percent or less. This is because health insurance was not primarily for medical care, but for income stabilization for families. Thus, many of the plans applied only to wage earners.
In Germany, coverage soon expanded to other parts of the work force, with family members of workers included after 1892. The state continually consolidated the various insurance funds. By 1928, practically all workers in Germany making less than 3,600 marks were forced to participate in the system. As the program developed, longer coverage and more benefits were applied for. The benefits paid out by the funds continuously exceeded contributions and required government subsidy.
The socialized health insurance also saw an increase in what Walter Sulzbach has named "malingering" in his study The German Experience with Social Insurance (1947), that is, people not personally paying for the service use it more easily and longer.
Originally the insurance funds set the fees that would be paid for services. But in 1913, a German doctors' strike was averted by adding members of the medical profession to the committee that determined the fee system. The frequent practice of physicians charging higher fees to wealthier patients was outlawed. Thus, the physician's income became purely based on the number of procedures at the fixed fee per period, as opposed to the quality of the service provided. Patient choice of a physician became reduced as doctors were assigned by the system. By the late 1920s, up to 80 percent of the medical profession in Germany was working for the mandatory health-insurance system, and 60 percent of all earnings in the medical profession came from payments from the compulsory insurance funds. At the same time, patients grew increasingly dissatisfied with the factory-style treatment that developed. Pharmacies also became increasingly dependent upon the compulsory system, with as much as 85 percent of their business turnover coming from these insurance funds by 1932. Under the Nazi regime after 1933, the compulsory health insurance system became even more centralized and controlled.
Today, 92 percent of Germany's residents receive health care through mandatory health insurance, provided by about 1,200 nonprofit sickness funds. Those not insured through these funds, mostly civil servants and the self-employed, have private for-profit insurance. An estimated 0.3 percent of the population has no health insurance. This population includes the very rich who do not need insurance and the very poor, who hope to receive health care through social assistance.
In communist Russia, Josef Stalin set up centralized state medical care. This system theoretically guaranteed medical care to every citizen. In reality, service was rationed, many remote areas were barely serviced, and the nomenklatura, or elite members of the Communist Party (CPSU), received priority in the best hospitals in Moscow and major cities. The communist system went bankrupt in 1989, unable to fund medical treatment. Subsequently, the system was partially privatized along the lines of the British system. But many Russian citizens are unable to pay for health insurance plans and fail to get adequate treatment in the antiquated facilities, many of which were built in Stalin's time. The average lifespan of Russians has decreased by five years since the collapse of the communist system, and inadequate health care must be viewed as one of the likely causes of the decline. Many Russians with money who want treatment in modern facilities with the latest equipment travel to other countries.
England and Canada
The National Health Service (NHS) is the public face of the four publicly funded health care systems of the United Kingdom. These organizations provide the majority of health care in the UK according to the four categories of general practitioners, accident and emergency service, long-term health care, and dentistry. These four systems were founded in 1948, and have become an integral part of British society. Private health care has continued parallel to the NHS, paid for largely by private insurance, but it is used only by a small percentage of the population, and is used generally to cover treatment not provided by NHS services.
In England and Canada, and other governments that regulate national health care, budget constraints generally lead to rationing of medical services. People are treated more equally and everyone is covered. However, doctors are forced to see more patients and give them less time, and they are rated more on quantity rather than quality of care provided. There are longer waits for services, and few patients receive the more expensive treatments. For example, Canadian and British doctors see about 50 percent more patients than American doctors. In the United States, 87 per 100,000 people receive dialysis in a given year, whereas the number is 46 in Canada and 27 in England. Likewise, 203 people per 100,000 receive coronary bypass surgery in the United States compared to 65 in Canada and 41 in England. Britain, the country that invented the CAT scan, has exported many units to other countries, but has only half as many units per capita for its own citizens as the United States.
History of Private Health Insurance in the United States
The United States did not follow the course of European countries. For one thing, the federal government was very small compared to today, and health and labor issues were basically left to individual states and local governments. Instead, private insurance companies grew out of mutual assistance societies, which were not as widespread as in Europe. The first policy giving health benefits was offered by Massachusetts Health Insurance of Boston in 1847. A few other companies organized around 1850, but these early efforts quickly went bankrupt. The first individual plans in the United States began as a form of travel insurance to cover the cost if one was injured in an accident on a steamship or railroad.
Insurance companies issued the first individual disability and illness policies in the 1890s. This payment model continued until the twentieth century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance. Many of the early policies were expensive and only 30 to 35 percent of the premiums were returned to policyholders as benefits. The new industry was unregulated and fraud was widespread.
John Dryden, founder of Prudential Insurance, said in 1909 that such insurance should be left to fraternal organizations that could better monitor members and that commercial insurance could only be soluble if it was limited to death benefits. Many industrial life insurance policies were issued to working-class families in the first part of the twentieth century.
Labor Unions and Socialized Medicine
The American Association for Labor Legislation (AALL), organized in 1906, included notable progressive economists John R. Commons and Richard T. Ely and had had success in promoting workers’ compensation and child labor laws. President Theodore Roosevelt was receptive to the AALL campaign for mandated federal health insurance, but was defeated in the 1912 election. AALL continued to hold conferences and meet with the American Medical Association (AMA) and gradually moved the public toward greater support for health insurance; however, business interests successfully lobbied to defeat any legislation that would make health insurance compulsory. Franklin D. Roosevelt's Committee on Economic Security, which shaped the Social Security bill in the 1930s, favored including compulsory health insurance, but it was omitted from the Social Security Act for fear it would lead to the larger bill's defeat. As progressive labor unions continued to push for national health insurance, World War II intervened.
President Roosevelt had planned to take up the issue of national health care again after the war, and President Harry S. Truman unsuccessfully tried to get national health legislation passed. However, Truman developed some piecemeal ways that government could get involved in improving national health care. One method was to fund medical research and institutes to develop new advances in medicine. Another method was to create more welfare programs that could provide health care to the uninsured.
In the 1920s, the development of modern hospitals became a new factor in health costs. Hospitals had traditionally been religious and charitable institutions primarily for care of people without families to care for them. However, with advances in surgery and expensive medical equipment, more hospitals became facilities for general medical treatment. Traditional insurance plans did not cover hospitalization.
The insurance plan normally cited as being the first to have provided some form of hospitalization coverage was Baylor University hospital's idea of providing school teachers up to 21 days of care for a $6 annual fee. Other hospitals in Dallas followed suit. This was the origin of an idea that developed into Blue Cross; hospital insurance backed, not by capitalization, but by a guarantee by hospitals to provide care. Within a year after the stock market crash of 1929, hospital receipts per person fell to 25 percent of what they had been in the robust economy. In 1932, the American Hospital Association acknowledged the crisis in hospital finance and recommended other hospitals adopt hospital underwriting. The Blue Cross logo became used as a symbol that a hospital plan met certain standards of care.
General Motors signed a major contract with Metropolitan Life Insurance to cover 180,000 workers with health insurance in 1928. Under this plan and similar ones, about 10 percent actually was paid out in medical expenses and the bulk for lost wages. The National Labor Relations Act (or Wagner Act), passed in 1935, had given workers more rights in forming labor unions and entering into collective bargaining agreements with employers. During World War II, wage freezes were imposed, causing employers to seek additional ways to attract workers during the war economy. One alternative that could indirectly increase wages was to offer fringe benefits like health insurance. Employers with large groups of employees could bargain with private insurance companies or doctor's groups and clinics that sold prepaid group plans. This created a climate in which health care became a key issue in employment, and the results spilled over for non-union workers as well, expanding both the scope of coverage and the percentage of employer contributions. Many unions preferred the Blue Cross plans for hospitalization because full payment for services was guaranteed.
As migration from rural to urban areas continued in the United States in the 1950s and 1960s, the majority of U.S. workers became covered under company health plans. Governments adopted similar or better plans for their workers. The major portion of the population not covered by health insurance was older people who were not employed, or retired. This set the stage for another push for national or compulsory health insurance for these groups. In 1960, Congress responded to this push with the introduction of federal support for medical welfare programs in the states. When the Democrats swept the election of 1964, Medicare became a top priority and was finally passed, not as outright welfare, but as a compulsory program in which workers contributed a portion of income towards old-age medical insurance while they were employed.
The U.S. Health Care Crises
The ad hoc measures that arose to address health insurance in the United States in the twentieth century contained within themselves the seeds of an unstable national medical system, which grew into a leviathan. The increase in the number and expense of medical treatments available, the rise of near monopolistic groups among doctors and hospitals, the monopoly that patents provided on drugs, the lack of market forces in the health field with third-party health insurance payers, and the insatiable demand for health care by consumers all led up to a collision course between what health insurers had to charge and what consumers were able to pay.
Add to this the fruits of post-war affluence that made many unhealthy practices fashionable: insufficient exercise; junk food and unhealthy diets; excessive alcohol use, smoking, street drugs, obesity, and the sedentary lifestyle of office jobs as opposed to jobs based on physical labor. These further raised the cost of health insurance. Connected to this was modern scientific medicine's disdain for traditional alternative forms of medicine, chiropractic treatment, and preventive medicine, and the lack of insurance coverage for these things.
The final irony is that better medical care has greatly increased the lifespan of Americans, leading to an ever-increasing proportion of elderly citizens dependent upon Medicare to the number of workers paying into the government system.
These crises have led to many attempts to control costs or raise rates, with the end result being greater disillusionment with the health care system and a growing number of less-insured or uninsured citizens.
In the 1990s, increased outsourcing of work and corporate restructuring was often triggered by unsustainable health insurance costs of employees. By 2000, health insurance contributed more to the cost of producing a new Chevrolet than the physical components of the car. Fewer employer health insurance plans have contributed to the growing number of uninsured citizens.
Attempted Solutions to Health Insurance Problems
HMOs and Managed Care
One solution to the health insurance crises, aimed at controlling costs, is managed care. Managed care plans often increase preventive coverage to keep members healthy, and they tend to ration treatments or at least limit expensive procedures. They often have nurses and lower-paid employees doing preliminary screening and some other things doctors traditionally have done. Through the 1990s, managed care grew from about 25 percent of U.S. employees to the vast majority.
|Rise of managed care in the U.S.|
|Year||Conventional plans||HMOs||PPOs||POS plans|
According to the Centers for Medicare and Medicaid Services, nearly 100 percent of large firms offer health insurance to their employees. Although much more likely to offer retiree health benefits than small firms, the percentage of large firms offering these benefits fell from 66 percent in 1988 to 34 percent in 2002. This follows the impact of global labor trends like outsourcing on the general cost of labor.
Patient satisfaction is generally lower than traditional plans and has often been viewed as a temporary solution to a system whose crisis is larger than such types of care can solve.
COBRA and Mandatory Continuation
Another problem with employer-paid health insurance is that terminated employees find themselves without insurance coverage, and if they acquired medical problems during their employment, an insurance company is likely not to issue them a personal plan because they are too high a risk.
This problem has led to government legislation that provides a way for people to continue coverage. Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. The law provides for continuation of group health coverage that otherwise might be terminated. This continuation period is 18 months, after which time a guaranteed conversion plan must be offered by the insurance company. However, these rates will be higher than market rates for healthy individuals in a comparable age group. Thus, people who need health care the most are less able to afford private insurance.
Health Savings Accounts
Another recent development has been a high-deductible insurance plan coupled with a tax-exempt health savings account. This was made possible by legislation passed in 2003 as an incentive to reduce overuse of medical care by having consumers directly pay for routine medical treatment and having insurance policies cover only major medical costs, for example those over $5,000. Consumers can deposit money into health savings account and deduct that amount from income they have to pay on income taxes. They can invest the money in the account, and if they do not use it, this account can grow. The cost of major medical insurance premiums plus the amount required to fund the deductible portion is generally less than premiums for total health coverage. These plans encourage more personal responsibility in health care than employer- or government-provided health insurance.
Health Insurance 2006 Census in the United States
According to the 2006 United States Census Bureau figures, approximately 85 percent of Americans have health insurance. Approximately 60 percent obtain health insurance through their place of employment or as individuals, and various government agencies provide health insurance to over 29 percent of Americans.. In 2005, 46.6 million Americans (15.9 percent) were without health insurance for at least part of the year. One-third of these are people who are eligible for public health insurance programs but have not signed up for them. People living in the western and southern United States are more likely to be uninsured.
The Future of Health Insurance
Health insurance is still a new and changing form of insurance. Two centuries ago, no one imagined the revolutionary advances in medicine and technology that would provide today's wide array of options for repairing injuries, curing diseases, and prolonging life. At the beginning of the twentieth century, only a few of the medical possibilities that exist today were available. Various forms of insurance, both private and social, were developed and seemed reasonable, but no one could have predicted the exponential increase in medical advances and expenses that followed, partly as a result of the increased money available for medical research and hospital purchase of medical technology. These plans also failed to account for human nature—how these plans would lead to increased consumer use and abuse.
The twentieth century provides lessons and boundaries for the future of health insurance. People want to be as healthy as possible, and if possible, they want other people to pay the cost. However, both the private plans that pushed payments onto employers and the socialist plans that expected governments to pay failed to continue to deliver the medical care that people wanted. After a century of experience, there are no major countries without some mixture of personal responsibility and social safety net. In countries where social insurance leads to rationing of medical care, those who can afford it seek to go outside the system and procure extra care that fits more with their expectations. In countries where not everyone can afford insurance, there is some effort to create social welfare programs to help those who would not otherwise get medical care. The wealthier the nation, the more this is possible. Because human beings have a social conscience, they want to see those in need cared for as much as reasonable.
Health savings accounts combined with high-deductible insurance are a new innovation that puts more responsibility for routine medical care on the consumer, while still providing protection against large, unforeseen medical expenses. These innovations might be part of the solution to the health crises that exist in many countries. However, unless issues of monopoly, conflict of interest, checks on power, and unnecessary government mandates in the medical sector are addressed, prices of health insurance will not be generally affordable for all individuals in a post-industrial society.
- ↑ Paul Starr, The Social Transformation of American Medicine: The Rise of a Sovereign Profession and the Making of a Vast Industry, pp. 237–239.
- ↑ Richard M. Ebling, National Health Insurance and the Welfare State, Part II. Freedom Daily, February 1994. Retrieved April 12, 2007.
- ↑ Ibid.
- ↑ John Goodman, "Five Myths of Socialized Medicine," Cato's Letter, Winter 2005. This newsletter does not explain the possible overuse of medical procedures based on social forces operating in the U.S. health care system.
- ↑ The History of Health Insurance in the United States. Retrieved January 26, 2007.
- ↑ Paul Starr, The Social Transformation of American Medicine: The Rise of a Sovereign Profession and the Making of a Vast Industry, p. 240.
- ↑ See California Insurance Code Section 106 (defining disability insurance). Retrieved April 12, 2007. In 2001, the California Legislature added subdivision (b), which defines "health insurance" as "an individual or group disability insurance policy that provides coverage for hospital, medical, or surgical benefits."
- ↑ http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf Centers for Medicare and Medicaid Services. Retrieved April 12, 2007.
- ↑ Ibid.
- ↑ FAQs About COBRA Continuation Health Coverage. U.S. Department of Labor. Retrieved February 1, 2007.
- ↑ Income, Poverty, and Health Insurance Coverage in the United States: 2005. U.S. Census Bureau. Issued August 2006. Retrieved April 12, 2007.
- ↑ Ibid.
- ↑ Ibid.
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